President Trump's Most Favored Nation Policy for Medicare Drug Costs Unlikely to Bring Near Term Changes

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On September 13, 2020, President Trump issued an Executive Order seeking to establish most favored nation ("MFN") pricing for Medicare drug payments. The Trump Administration's Order, 'Lowering Drug Prices by Putting America First,' comes nearly two months after the Administration sought to kick-start efforts to control drug prices by signing three Executive Orders on July 24. Collectively, these earlier Orders sought to reduce the cost of insulin and injectable epinephrine, allow for the safe importation of prescription drugs, and to eliminate existing anti-kickback safe harbour protections for rebates paid to pharmacy benefit managers ("PBMs"). At the time of those three Orders, the President also threatened to release a fourth Order establishing an MFN policy. However, that fourth Order was announced but not issued, as a means of pushing pharmaceutical companies to the bargaining table to negotiate a better deal. When those negotiations did not result in an alternative acceptable to the Administration, the President issued the September 13 Order, which seeks to make good on his promise to implement an MFN pricing model for Medicare. In fact, the Order is broader than what was announced in July, as it now extends to Part D drugs, in addition to Part B drugs.1

As with the three July 24 Orders, the likely impact of the Medicare MFN policy is uncertain at best.2 The MFN Order directs HHS to take immediate and appropriate steps to implement test payment models for Part B and Part D to the "extent that is consistent with the law."3 This regulatory process to establish such payment models takes time and is unlikely to result in immediate changes. However, there are reports that the Administration may seek to bypass those regulatory steps and issue an interim final rule to implement the Part B proposal. Nevertheless, even that approach seems unlikely to result in near term changes. Particularly because pharmaceutical companies, and other industry stakeholders, have already signalled their intent to oppose implementation of the Order, including through legal action.4

The stated purpose of the MFN Order is to ensure that "Americans [do] not bear extra burdens to compensate for the shortfalls that result from the nationalized public healthcare systems of wealthy countries abroad."5 The Order seeks to achieve this by implementing an MFN "policy" for Medicare drug payments.6 After adjusting for volume and differences in national GDP, the MFN model would cap Medicare payments for drugsat the lowest available price in OECD countries that have "comparable" per-capita GDPs. The Order, however, only offers limited details on implementation. For example, it does not set forth the specific mechanics of the models, the countries that will make up the MFN index, or the list of drugs subject to the MFN limits.

For Part B drugs, the Order directs the Secretary of HHS to "implement his rulemaking plan" to test an MFN payment model for "certain high-cost" drugs and biological products – which are not identified – in order to determine whether the model "would mitigate poor clinical outcomes and increased expenditures associated with high drug costs."7 The reference to a "rulemaking plan" may refer to HHS' October 2018 "International Pricing Index" Advance Notice of Proposed Rulemaking, which outlined a demonstration program that would align Medicare prices for most Part B drugs more closely with international prices, albeit applying a different model than the MFN approach described in the September 13 Order.8 The IPI proposed rule reportedly has been under Office of Management and Budget review since June 2019. For Part D drugs, the Order directs HHS "to develop and implement a rulemaking plan" for MFN payment limits, with the same goal to measure the impact on outcomes and expenditures.Rather than apply to "certain high-cost" drugs and biological products, the Part D MFN policy targets drugs and biological products "where insufficient competition exists and seniors are faced with prices above those in "economically comparable OECD countries." Further, the MFN model applies to Part D drugs only "to the extent feasible."10 What the Secretary of HHS determines to be instances of "insufficient competition" and "feasible" MFN payment limits remain open questions.


1 The Administration actually issued two Executive Orders with the same title on September 13. The first was the MFN Order regarding Part B drugs announced but withheld in July, while the second revoked and replaced the first with expanded coverage to include both Part B and Part D drugs.
2 White & Case, Uncertainty on Drug Pricing Remains Following Trump Administration Executive Orders (Jul. 29, 2020)
3 Executive Order on Lowering Drug Prices by Putting America First (Sept. 13, 2020) §3 and §4.
4 Bio, BIO's Dr. McMurry-Heath Says Adopting Foreign Price Controls a "Reckless Scheme" that will "Eliminate Hope for Vulnerable Seniors" (Sept. 13, 2020); PhRMA, PhRMA Statement on Most Favored Nation Executive Order (Sept. 13, 2020)
5 Supra note 3, §1.
6 Id., §2.
7 Id., §3.
8 Federal Register, Medicare Program; International Pricing Index Model for Medicare Part B Drugs (Oct. 30, 2018)
9 Supra note 3, §4. The Order's Part B and Part D demonstration project proposals appear to rely on CMS' Center for Medicare and Medicaid Innovation mandate to develop and test innovative payment models. 42 U.S.C. 1315a.
10 Id.


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